USPS Cuts Back on Discretionary Spending

The U.S. Postal Service is quietly reducing unnecessary expenses by millions of dollars to ensure that postal rates won't increase until 2001 and to help the agency meet its financial goals, sources said last week.

Last year, the USPS announced plans to make $800 million in FY99 and $1 billion in FY00, and the belt-tightening has begun so it can attain those numbers. According to sources, it has cut back on its travel and advertising budgets, instituted a hiring freeze, trimmed consulting contracts and delayed some capital investments. Plans were enacted after postal officials saw results from Accounting Period 5 -- which covers the time when new postal rates went into effect in January -- and found the goals weren't being met. Postal executives would not confirm what is being cut.

Net income was $763 million for AP5, $197 million below plan. And in AP6, the postal service reportedly posted a loss of $15 million despite the new rates which were in effect for the entire period.

Many postal watchers are concerned that any cutback may harm its service.

"We don't want to see service sacrificed," said Jerry Cerasale, senior vice president of government affairs at the Direct Marketing Association. "We encourage them to get things under control so we can continue with these current rates for a long period of time and not have to rush toward a new rate case."

A USPS spokesman said service won't be affected this year or next. A postal source confirmed there are budget problems and said an official announcement is expected in a few weeks.

Cerasale said the DMA also is watching which capital expenditures the USPS is cutting since that is closely tied to its productivity.

"One of the keys for the postal service for the future is to be able to dramatically improve productivity," he said, "so it either has to spend in that area or focus its capital expenditures to make sure it has a significant productivity return for [those expenditures]."

In short, postal watchers said the agency needs to spend money smarter to increase productivity.

"The USPS' significant under-investment is resulting in failure to increase productivity," said John Haldi, a New York-based postal expert. "They will not get productivity up until they start spending far more in investments than they have been."

Haldi pointed out that the postal service spent $1.6 billion in net investment on 27 major capital investment projects last year, including 11 facility projects, 14 equipment projects and two vehicle projects. "This is not that much money in the context of a $60 billion operation that has been growing at 3 percent, compounded, for many, many years."

In addition, according to the 1998 Comprehensive Statement on Postal Operations, total productivity declined 1.1 percent and the USPS has had negative growth for four of the past five years.

"If the postal service spent money more wisely, they would have had a better increase in productivity," Haldi said.

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